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One of the most fundamental changes taking place in the present phase of capital development is the emergence of a power bloc of finance capital. The concentration and centralization of capital in the context of digital technology and globalization has brought about a unification of the circuits of the different fractions of capital (productive, financial, and commercial), giving birth to finance capital. Thanks to neoliberal doctrine, finance capital has achieved a wide field of maneuver, and converted into a power bloc, it follows a monopoly factional strategy with a variety of social impacts. Central bankers, under a false guise of impartiality, have become partners of this power bloc, acting as its lenders of last resort and validating its preferences in market strategy and credit management. This article analyzes and discusses three topics: a) the role played by finance capital in the accumulation of capital, in particular, its conversion into a power bloc and the economic and socio-political consequences of that change; b) the economic implications of a bailout of finance capital by the lender of last resort; and c) the consequences of the change from quantitative easing to quantitative tightening, in order to return the rate of interest to its historical level. [ABSTRACT FROM AUTHOR]

The analysis of Lombard Street focuses on two dimensions that have received little attention: (1) Bagehot's analysis of the systemic financial interdependencies between the functional poles of creditors and debtors in financial markets; and (2) the significance of trust and expectations in the functioning of these promise-to-pay markets. These dimensions lead us to Bagehot's well-known principles of central bank responsibility in the historical legislative-political context of the Bank Charter Act of 1844. Despite its publication 150 years ago, this book deals with the then new and still relevant finance-based interdependencies where functional roles need to be redefined and restructured. [ABSTRACT FROM AUTHOR]

After discussion of the lender of last resort before Bagehot, we turn to what Bagehot actually said about the concept, the institutions involved, and appropriate lending terms for the Bank of England in a crisis. We examine the application of "Bagehot principles" in several nineteenth, twentieth and twenty-first century episodes. By operating through the discount houses in the nineteenth century, the Bank of England was able to focus on the quality of the paper presented for discounting, rather than on the solvency of each individual bank. Emphasis was thus on the stability of the system, not of individual banks. [ABSTRACT FROM AUTHOR]

Why use a viabilistic approach to model economy? Because it is urgent to re-assess the modeling of the business cycle that integrates dynamic money creation and that has at its core the notion of constraints. The purpose of this paper is thus to propose an evolutionary economic model using a mathematical framework derived from set-valued analysis, differential inclusions and viability theory. As this approach is dynamical, the model will not use two concepts on which neo-classical economics are built i.e., (1) the existence of static repeated equilibria, (2) the optimization by an economic agent of a utility function. Furthermore, we will not use any self-organization process or "invisible hand", as in our viabilist framework the economic viability will be maintained by explicit choices of the economic agents and of the lender of last resort over the budgetary and monetary rules to apply. Indeed, even simple constraints on the second-derivative of the means of payments already induce four-phased business cycles. Coupling these constraints over the creation of means of payment with economic evolutions of prices and commodities through a budgetary constraint allows for a single formalism, tackling jointly the question of the viability of economic and monetary evolutions. [ABSTRACT FROM AUTHOR]

I propose a theoretical model of a debt contract between a sovereign and its international lenders that determines the optimal debt maturity structure and related costs. It is shaped by two financial frictions: limited liability (the country cannot guarantee that it will not dilute its obligations or default on them) and market incompleteness. In equilibrium, debt dilution constrains the amount of long-term debt issuance. I use this framework to evaluate the impact of two policy interventions: the possibility of sovereign debt restructuring with private creditors and international official lending in the event of exclusion from the international capital markets. The possibility of restructuring after default stimulates long-term debt issuance; however, in equilibrium, those tools are unable to loosen the constraint on long-term debt issuance. Consistently with the empirical literature, I find that even when these policy options are available, the country tends to issue mainly short-term debt. [ABSTRACT FROM AUTHOR]

This article traces the evolution of what has come to be called the Kindleberger-Minsky model, starting with Kindleberger’s 1978 publication of Manias, Panics, and Crashes and continuing thereafter. The key to understand the affinity of the two men, it is argued, is a shared intellectual ancestry in pre-war American institutionalism, which led to shared outsider status in the post-World War II economics academy. Both also identified with the longer tradition of monetary thought that emphasizes the inherent instability of credit, and hence the necessity for central bank management.

We show that nineteenth century central banks could use credit limits for discount loans as a means to enforce supervisory standards long before they had any formal regulatory powers. Drawing on novel microdata from the Austro–Hungarian Bank's archives, we document that credit limits were continuously monitored and that their size was contingent on counterparties' liquidity and capital position. Counterparties had an economic motive to abide by informal prudential 'rules of the game': higher credit limits enabled counterparties to streamline their day‐to‐day liquidity management. We exploit the heterogeneous exposure of counterparties to an exogenous liquidity shock to evidence that the Bank relaxed credit limits during crises to fulfil its role as a lender of last resort. [ABSTRACT FROM AUTHOR]

This paper investigates the relation between bank liquidity and borrowing from a lender of last resort on a high frequency basis during a financial crisis. The paper evaluates weekly observations of individual bank borrowing of clearinghouse loan certificates by a panel of New York Clearing House member banks during the crisis of 1884. Naturally, banks with higher reserve ratios borrowed lower amounts, but banks replaced a dollar of reserves with less than a dollar of borrowing from a lender of last resort. [ABSTRACT FROM AUTHOR]

The past two decades have seen the construction of a tiered system of international liquidity provision, the first tier including those whose credit is sufficient for a swap line with the Fed, the second tier including those who can offer acceptable collateral to the Fed, and the third tier including everyone else. It is a global dollar system, with the Fed operating de facto as the global central bank providing international lender of last resort support to the system. It is a system created not so much by conscious design, but rather as a pragmatic response to crisis, bit by bit over time.

In the summer of 1931, the Austro-German banking crisis spread to Romania and Bulgaria. In the Romanian case, the management of the crisis confronted three types of protagonists – politicians, bankers and central bankers – and positions about the relevant attitude to adopt, in particular to avoid or not the Marmorosch Blank Bank bankruptcy. In Bulgaria, the management of the crisis was more consensual. The intervention of the Bulgarian National Bank allowed the refunding of the more important banks, while a further 34 were declared bankrupt and smaller ones silently disappeared. One of the largest banks in Bulgaria, Credit Bank, was rescued. Archive documents, reports of participants and comments from contemporaries, all emphasize the different conceptions of the function of lender of last resort as held by the different protagonists facing this systemic crisis.

The author argues that the idea, that the Bank of England accepted Walter Bagehot's recommendations from around the 1870s onwards and adopted the role of lender of last resort for the British financial markets, is a misconception. The published balance sheets give this impression, but a closer analysis of the balance sheet shows that the Bank of England never lost sight of the profit motive and had tied its own hands through the composition of its asset portfolio in order to be able to intervene effectively in the case of crisis. Even the only serious threat to financial market stability in the period under review, the Baring crisis of 1890, could only be mastered thanks to a broad rescue operation, coordinated solely by the Bank of England. This experience obviously did not contribute to a lasting change in the orientation of the Bank’s business policy until the First World War.

The Latin Monetary Union (hereafter LMU) was established in 1865 between France, Italy, Belgium and Switzerland. The agreement provided for the adoption of a common monetary base consisting of specie, and the adoption of the free circulation of gold and silver coins among them, whatever the issuing country. Despite its original goal, the minting of silver coins was subject to numerous restrictions (especially between 1874 and 1876) before being fully suspended by article nine of the convention of November 5th 1878. The necessity for a lender of last resort quickly appeared in practice, even though the 1865 convention, and its numerous amendments, did not mention it in theory. The present article looks at how the idea of the lender of last resort was discussed in the context of the Latin Monetary Union. Specifically, it focuses on two opposing views on the LMU and its problems, as adopted by French economists at the time. The article concludes that the Banque de France played a crucial role in safeguarding the LMU. Referring to Bordo’s 1990 typology of lenders of last resort, we also add a fifth type, that of converter of last resort, to characterise the specific role played by the Banque de France.

The permanent international lender of last resort consists of a swap line network between six major central banks (C6), centring around the US Federal Reserve. Arguably, this network is a solution to a long-debated problem as it provides public emergency liquidity provision to the world's largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur and Newman (2017) and Braun (2015) , we develop an interpretive framework of bricolage to contextualise its formation: in times of crisis, central bankers rely on retrospection, experimentation and creative re-deployment to develop their tools. In non-crisis times, however, the tools that prevail are those that offer what we call 'bureaucratic familiarity': the C6 swap line network became a permanent feature of international finance because technocrats had got used to it. [ABSTRACT FROM AUTHOR]

Compared to the history of money and banking, the history of central banking is fairly brief and has been influenced by the development of modern nation states, by the economic environment and by technological advances. Accordingly, on-going innovations in digital technologies and the globalization of the economy are expected to have significant impacts on central banking in the future. Since all the core activities of central banking, such as the issuance of money, the operation of settlement systems, its function as lender of last resort and its monetary policy, are based upon "trust", its history has been, and its future will also be, closely linked to the most efficient framework in terms of building trust and reflecting changing technological and institutional conditions. Even though digital innovation may influence the styles of central banks in the future, the relevance and effectiveness of their payment and settlement infrastructures, their function as lenders of last resort and their monetary policies will be maintained. Besides, the need for risk-free central bank money will remain strong on account of its capacity to reduce risks in economic transactions, and central banks will have to continue making efforts to meet these demands through the enhancement of the utility of their infrastructure, including real-time gross settlement systems. Regarding central bank digital currencies, many issues require further examination. The future of central banking will be closely interlinked with that of nation states and depends on its capacity to identify the ideal mode of utilizing information and data in the economy. [ABSTRACT FROM AUTHOR]

How should history judge the euro crisis and the way it was handled? Does it qualify as a policy fiasco in the sense that it was avoidable? Or could the crisis at least have been handled in a manner which substantially reduced its destructive impact on the economic and social welfare and politics of Europe? These questions necessitate counter-factual analysis. Nevertheless, they deserve attention. How history is interpreted impacts decisions about today and tomorrow. The article explores three discourses on economic governance: on financial stability, fiscal policy and on growth. Each discourse came with pathologies: they did not sensitize decision-makers to crucial negative consequences of the policy choices they privileged at decisive points in the sequence of boom, bust and (policy engineered) painfully slow recovery. The ECB has quietly changed its ways, but unwillingness to confront the crisis head-on as a policy fiasco can obstruct learning opportunities that are important for the EU and the Eurozone going forward. [ABSTRACT FROM AUTHOR]

This paper constructs a theoretical model to examine the LOLR policy when a central bank can imperfectly screen insolvent from solvent banks. We find that: (1) Central bank screening produces a "positive" stigma associated with central bank borrowing by punishing insolvent banks. (2) With central bank screening, the LOLR policy in fact reduces moral hazard rather than inducing it. (3) If the central bank can better identify solvent and insolvent banks when they apply for central bank loans, it will improve social welfare first by forcing the insolvent banks to efficiently liquidate their assets and second by deterring banks from choosing the risky assets to start with. [ABSTRACT FROM AUTHOR]

The actions taken by J. P. Morgan during the Panic of 1907 reveal how a skilled leader can dominate those of formal institutions during the resolution of a financial crisis. First, we examine how Morgan coordinated emergency liquidity infusions during the Panic in the absence of a formal lender of last resort (LOLR). Morgan’s Syndicate Books provide evidence that all applicants for liquidity had participated in earlier bond underwriting syndicates with Morgan. The single denial of aid was to an agent from an unprofitable syndicate, the Knickerbocker Trust. Morgan’s decisions to provide or withhold aid to distressed institutions appear to track more closely with his previous syndicate experience with each applicant. Recommendations made by committees he formed to estimate applicants’ solvency appear less important. Then, we show that Morgan’s decisions had a distinguishable effect during the Panic on the prices of bonds underwritten by his syndicates. We find that during the Panic bond traders revised upward their valuation of bonds underwritten by Morgan compared to bonds underwritten by bankers that had not undertaken LOLR activities. We interpret these results as implying that market agents had greater expectations of valuable advice or liquidity infusions to Morgan-backed issuers than to issuers backed by other bankers. These findings provide support for Morgan’s effectiveness as a mobilizer of private reserves, a private LOLR, during the Panic of 1907.

International political economy (IPE) has explained financial globalization as the result of states deciding to open up and liberalize domestic financial systems. Complementing this 'negative integration' view, we present a theory of financial globalization during the 1970s that emphasizes the importance of 'positive integration.' Credit money systems are characterized by public-private infrastructural entanglements, the management of which require substantial institutional work by monetary technocrats, both at the domestic and at the international level. To illustrate our theory, we trace the expansion of the Eurodollar market during the 1970s. Drawing on archival records from the 'Standing Committee on the Euro-currency Market' at the Bank for International Settlements, we show how this group of G-10 central bankers sought to elevate the management of infrastructural entanglements from the domestic to the international level. By ensuring that the Eurodollar market did not interfere with domestic monetary governability, while seeking to provide protection for issuers of Eurodollars, monetary technocrats helped establish the institutional infrastructure for the expansion and globalization of the offshore US dollar system. [ABSTRACT FROM AUTHOR]

This article examines the evolution of central banking in England during the 19th century. Although the Bank of England was, during the period examined in this contribution, a privatelyowned and privileged company, its money market operations (at least from 1873 onward) are always interpreted as the gradual adaption of the duties of a modern central bank, including the role as the »bankers’ bank«. The fact that it was also in competition with discount houses and commercial banks on the money market is, however, largely neglected. Contrary to conventional wisdom, this article analyses the Bank of England operations under the rationale of a utility-maximising institution which had to hide that its principal business objective was a high and stable dividend.

The aim of this paper is to present the costs and benefits of applying dollarization. The most common reason for accepting, in whole or in part, a foreign currency is the presence of a high and volatile inflation rate, which is followed by the significant volatility of the exchange rate, as well as a distorted confidence in its own currency. Likewise, highly dollarized countries most often characterized by a lower level of the development of the financial market. Dollarization contributes to lowering the costs of transactions in international trade and to achieving the price and financial stability, as import inflation is lower than domestic. On the other hand, the presence of full dollarization means a loss of seigniorage as the monetary authorities’ revenue from the printing of money, as well as the limitation of the implementation of the lender’s function in the last instance. The results of the analysis indicate that, in the dollarized countries, there was a decrease in the inflation rate, macroeconomic stability was established, and financial integration was present as well. The analysis also showed that the loss of income from seigniorage, measured as a share in the gross domestic product, is not negligible, while the lender’s function in the latter instance can be compensated through the formation of stabilization funds and the conclusion of contracts with financial institutions.

In this paper I have used a framework for the analysis of public debt stability that dates back to Domar, and I have extended it in order to consider, together with the role played by the interest rate, the rate of GDP growth and domestic fiscal policy, also monetary solidarity. A special role has been reserved in the analysis to the effects of agents’ heterogeneous expectations and uncertainty. I have also considered the effects of fiscal austerity and monetary solidarity on GDP growth and interest rates, and I have concluded that the euro area crisis came to an end thanks to the latter (the former having made things even worse, if anything). Within the same framework, I have been able to discuss also some of the other proposals, including federal solidarity, that have been advanced in the literature in order to avoid or to address future euro area crises.

The paper concerns the reception among central bankers of Bagehot's ideas on the lender of last resort (LLR). For the period 1999–2017 we construct a database of speeches by G7 central bankers that mention Bagehot. On the basis of this database, we show that there was a boom in mentions of Bagehot during the recent financial crisis. Using the Journal of Economic Literature (JEL) codes, we indicate that this increase in the references to Bagehot among central bankers mainly relates to the idea of the LLR, and specifically the so-called Bagehot rules. However, a variety of interpretations of these rules can be observed among central bankers. We argue that these differences in interpretation can be explained by the fact that Bagehot's rules are used by central bankers either to justify, or, on the contrary, to impose limits on the liquidity injections envisaged under the unconventional monetary policies adopted in reaction to the crisis. We conclude that these diverging preferences on liquidity injections among central bankers allow us to distinguish two main "types" of receptions of Bagehot's rules: liberal versus conservative. [ABSTRACT FROM AUTHOR]

Central bank responses to COVID-19 have been extraordinary in speed, in size and in scope. Much easier monetary policy, massive liquidity provision, and targeted credit support to the real economy all played a role in stabilizing financial conditions and credit. On net, there is preliminary evidence that central bank actions have been a positive—for access to credit and for the real economy—during very trying times. But the first six months have made clear that central bank policy can only indirectly address the core economic policy challenges of the crisis, whose trajectory remains highly uncertain. The risks to the economy and financial system remain very large, and key policy questions—on the degree of fiscal policy support to the real economy, about the limits of central bank risk taking and monetization of debt, and about the wisdom of heavy reliance on central bank policies given their impact on leverage and debt levels—remain just that. [ABSTRACT FROM AUTHOR]

When a government implements an LOLR policy during a crisis, creditors can infer a bank's quality by whether the bank borrows government loans. We establish a formal model to study an LOLR policy in the presence of this signaling effect. We find that three equilibria exist: a separating equilibrium where only low quality banks borrow from the government and two pooling equilibria where both high and low quality banks do and do not borrow from the government. Further, we find that the government's lending rate serves an important signaling role and that hiding the identity of the banks that borrow government loans tends to encourage banks to do so. We also find two welfare effects of the LOLR policy: the liquidation cost saving and moral hazard. Depending on which effect dominates, the optimal LOLR policy differs. [ABSTRACT FROM AUTHOR]